East Asia: 2015 in recap

Three main stories of the year in the Eastern Asia

Slowdown of the Chinese economy

According to the World Bank, since 2007 the Chinese economy was the fastest growing among G-20 countries, with an impressive average annual increase in GDP of about 8,2 percent. Since 2013, the Chinese economy started to gradually slow downas a consequence of government-led reforms towards developing service sector instead of export-oriented economy. As a result, in 2015 the GDP growth reached minimum since the crisis years of 2009 (6,9 points in the third quarter), threatening not to fulfill aimed by the government annual growth rate of 7,0 percent. The manufacturing output of Chinese economy also started to decline, whereas purchasing managers’ index (PMI) in summer months was the lowest for three years. The Chinese slowdown became an important trend not only for Eastern Asia, but also for the world economy, being a major factor in crash of commodity prices and decline in Chinese export.

On the one hand, the Chinese slowdown can be characterized as rather cyclic, whereas after a decade of impressive huge annual growth rates (sometimes, more than 12 percent in a year) the potential for growth is rather limited. The Chinese GDP has risen fivefold in a decade from 2000 until 2010, and for bigger economies it is always harder to grow up in the same amount as for the smaller ones. The GDP growth rate of 6-7 percent, which is expected in China until the end of 2015, is still much higher than by the most developed countries, as well as such fast-growing G-20 countries as India and Russia. After a decade of unbelievable high GDP growth rates, the Chinese economy shows unsurprisingly ‘normal’ growth rates for a country with the second in the world GDP.

On the other hand, there also systemic factors contributing to the Chinese slowdown, and the latter are more alarming for the Chinese government. Firstly, China, which has practiced the “One child policy” aiming to decrease the population growth since 1978, now expectedly faces shrinking of the workforce. For a long time, the Chinese relatively cheap and massive workforce was a major factor contributing to Chinese economic and manufacturing output growth. With the shrinking working age population (e.g. in 2014 the working age population shrunk by 3,9 million people), China faces two other problems: growing number of retired employees yet to be paid pensions by the state as well as incapability to restore the workforce in the near future. The “One Child Policy” resulted in an unnatural gender disparity for generations born after introduction of the policy, so now China has less mature women than it would be needed to restore the population in the near future. At the same time, which has a bigger impact on Chinese slowdown, the average salaries in China are gradually growing up, causing Chinese workforce to be less ‘cheap’. Now it is hardly to expect the Chinese economy to be driven by ‘cheap’ and massive workforce.

Another reason of the Chinese slowdown is its dependency on Western markets, now having a slowdown of the consumer spendingand conducting a policy towards restoring local manufacturing output in aims of competing the Chinese import. The Chinese economic slowdown is not only a foreseeable cyclic decline, but also to a large degree dependent on the systemic factors, not manageable by the Chinese government.

Why it is important for Kazakhstan?

The Chinese economic slowdown was a major factor for collapse of the commodity prices, now the main export products of Kazakhstan. For a decade, the Chinese manufacturers were among the main world consumers of oil and gas, importing more and more crude commodities every year and heightening the market demand of those products. Now, the declining growth rates of Chinese manufacturing output, as well as lowering foreign investment in China result in demanding less commodities. Alongside with US rising domestic oil production, and Iran yet to be allowed to sell oil to Western markets, the world supply of crude commodities exceeds the lowering demand. For Kazakhstan, such situation is a troublesome one: not only does the country’s budget shrink to a large extent, but also the investment into oil production will be at the minimum level, as a result, causing such major projects as “Kashagan” development to have insufficient investment.

What to expect in the future?

The International Monetary Fund forecasts Chinese economy to grow only by 6,3 percent in 2016, as a continuation of the general tendency towards the slow down. It is important to note that such factors as shrinking and more expensive workforce, lowering investment, and lowering consumers’ demand in Western markets cannot be simply solved by the means taken by the Chinese government, e.g. deflation of the Chinese yuan. Nevertheless, China is yet to remain among the biggest players in the world economy.

China-Taiwan thaw in relations

Photo: Taiwanese President Ma Ying-jeou (on the left) and Chinese President Xi Jinping (on the right)

The main political news of 2015 for Eastern Asia must be the first official meeting of the Chinese and Taiwanese Presidents in 66 years. Chinese President Xi Jinping and Taiwanese Ma Ying-jeou met on November 4th in Singapore in order to “consolidate cross-strait peace and maintain the status quo” as it was said in the official statementof the Taiwan President before the meeting. A year ago, on February 14th 2015 a meeting between governmental officials of both countries was held – for the first time in 65 years. Both meetings became historic due to long unresolvable dispute regarding the status of Taiwan and China itself. Taiwanese officials claim the authority over mainland China, designating their state as “Republic of China”. The People Republic of China, i.e. the mainland China, refuses to see Taiwan as an independent state, regarding it as being part of its territory.

The meetings held among highest officials of two countries have hardly had any effect at transformation of established official governmental positions of both countries. However, what is more important is the fact that a mechanism for communication between politicians of both countries was finally set up, and the latter may result in a more sensible warming up in relations among countries in the future. Having face-to-face negotiations may bring more understanding among politicians, whereas the generally high level of mistrust will decline.

Why it is important for Kazakhstan?

Since China became the world’s second economy, it started to reconsider its own role in international relations pretending to be a major power or superpower. However, the warming up in relations with Taiwan as well as promoting an image of ‘peaceful rise’ conducted by the Chinese government lets other countries see China’s rise as less threatening and alarming. As long as China is nice to a naturally adversary country like Taiwan, there is less concern for Kazakhstan.

China, main events in 2015: briefly

4 May 2015 – meeting of the Chinese President Xi Jinping and the Chairman of the leading Taiwanese Party Kuomintang, Eric Chu

11 August 2015 – devaluation of the Chinese yuan over 3% of its value in relation to the US dollar

28 December, 2015 – a new anti-terrorist law is approved in China; the law also increases opportunities for state-surveillance

Japan: A Controversy with the new security bill allowing troops to fight overseas

The figure of the Japanese PM, Shinzō Abe, was recently largely discussed in Japan. Under his rule, Japan for the first time in decades went out of recession in the last quarter of 2014 and the first quarter of 2015, however, its economy fell back to recession in the third quarter of 2015. Economic amelioration and then its downfall led to major dissatisfaction with the current government, and such sentiment was only enlarged after the new security bill has been passed in the Parliament of Japan. The bill allows the Japanese troops to participate in the collective self-defense measures, even when Japan is not directly threatened. The opponents of the law say that the new regulation is likely to lead to useless expenses for supporting American foreign military operations. The supporters of the law, however, emphasize its necessity in times when China and North Korea represent a new threat to Japan, the former because of growing economic potential and ambitions of a superpower, and the latter because of claiming to have nuclear weapon. However, even though the law was passed through Parliament, Japan is still unlikely to participate massively in overseas military operations, as long as the general sentiment towards such possibility remains negative in the Japanese society.

Why it is important?

The law passed in the Japanese Parliament was negatively seen by the neighboring China, claiming that Japan restores its imperial ambitions. In general, the law only negatively affects the Chinese-Japanese political relations, which previously have not been ideal. The relations among these main Asian countries became more strained in 2015, which is alarming for the neighboring countries.